1. Avid FD savers, who are Senior Citizens (60 & above), have a tax bonanza now!
2. Under Sec 80C, up to 1.5 lakh annually can be saved in 5-10yr Tax Saver FDs.
3. Under Sec 80TTB, 50,000 annual interest, on Savings, and FDs too, is tax-free.
4. As interest on all FDs are eligible for this deduction, it will also include interest on Tax Saver FDs, even for paid out option!
5. Hence, short-term and long-term Debt portfolio can be reconstructed into Savings accounts, Tax Saver FDs (paid-out and accrued interest options) and Regular FDs (paid-out interest option is now better), through laddering, since a logical analysis shows softening of interest rates.
6. Although non-senior citizens can avail of Sec 80C tax benefit through 5-10 year Tax Saver FDs, its interest is taxable at slab rate (although tax on accrued interest can be deferred till maturity year), while both types of interest (paid or accrued) are taxable annually in other FDs, because 10,000 interest deduction is applicable only for Savings accounts under Sec 80TTA.
7. For them, 3+ year debt funds, for medium to long term portfolio, would be better, both for market-linked earnings and indexation tax benefits, especially for higher tax slabs.
8. For MF-savvy investors with taxable income, an EPF-ELSS-Debt Fund-Hybrid Fund-Equity Fund combo is best suited for a healthy inflation-beating growth-oriented investment portfolio.
9. When a conservative senior citizen follows "100 minus age rule", he generally has 60-80% of corpus in debt-oriented products for the rest of his lifetime.
10. Within this debt corpus, he could protect his capital, and also save taxes annually, by utilizing Savings accounts and FDs, say, as follows:-
a) Maintain 1 lakh annually in 3% Savings accounts - 3000 annual interest earned,
b) Avail Sec 80C tax benefits up to 1.5 lakh annually, by laddering 6% Tax-saver FDs of 5-10 years duration - 9000 annual interest earned (whose taxation can be deferred to maturity year too), and
c) Ladder up to 6 lakh in 6% normal FDs of 1-4 years duration - 38000 annual interest earned.
d) In this way, 7.5 lakhs (excluding 1 lakh maintained in savings accounts) can be laddered annually without paying any tax, as the annual interest of 50,000 earned by the senior citizen is tax-exempt u/s 80TTB.
e) Further laddering can be done if the senior citizen's total annual income remains non-taxable.
11. Continuous laddering, as per suitability of future withdrawal needs, helps optimal tax-planning and capital protection of a senior citizen.
12. For the remaining debt corpus of the senior citizen, similar laddering of higher interest debt funds would also be tax-efficient, as there would be no accumulated interest involved too.
13. Upon systematic withdrawal, as per 3-yr+ needs, LTCG would also qualify for tax benefits under indexation rules.
14. Interest rates keep changing due to inflation, domestic growth, money supply or global economy.
15. Laddering is a fixed income strategy where a ladder is made by spreading corpus evenly among various debt products that mature at regular time intervals.
16. These intervals could be as short as 1 month and as long as 10 years, as per risk appetite and goals.
17. This strategy offers cash flows as per goals, by maturity of products at regular intervals.
18. Getting stuck with interest rates is also avoided, as instruments that offer better interest can be chosen as soon as the old instruments mature.
19. Market volatility is also managed, as getting locked into a product for an extended period gets avoided.
20. Laddering helps in diversifying investments and reducing risks.
21. It is best to start with shorter duration products, then expanding the ladder gradually as needed.
22. A ladder of debt products can be compared to an actual ladder for better understanding, which would, thus, have steps/rungs, a height and instruments that make it.
23. These can be any fixed income investments, such as bank FDs, Post Office products, bonds, government securities, debentures and debt funds of different maturity.
2. Under Sec 80C, up to 1.5 lakh annually can be saved in 5-10yr Tax Saver FDs.
3. Under Sec 80TTB, 50,000 annual interest, on Savings, and FDs too, is tax-free.
4. As interest on all FDs are eligible for this deduction, it will also include interest on Tax Saver FDs, even for paid out option!
5. Hence, short-term and long-term Debt portfolio can be reconstructed into Savings accounts, Tax Saver FDs (paid-out and accrued interest options) and Regular FDs (paid-out interest option is now better), through laddering, since a logical analysis shows softening of interest rates.
6. Although non-senior citizens can avail of Sec 80C tax benefit through 5-10 year Tax Saver FDs, its interest is taxable at slab rate (although tax on accrued interest can be deferred till maturity year), while both types of interest (paid or accrued) are taxable annually in other FDs, because 10,000 interest deduction is applicable only for Savings accounts under Sec 80TTA.
7. For them, 3+ year debt funds, for medium to long term portfolio, would be better, both for market-linked earnings and indexation tax benefits, especially for higher tax slabs.
8. For MF-savvy investors with taxable income, an EPF-ELSS-Debt Fund-Hybrid Fund-Equity Fund combo is best suited for a healthy inflation-beating growth-oriented investment portfolio.
9. When a conservative senior citizen follows "100 minus age rule", he generally has 60-80% of corpus in debt-oriented products for the rest of his lifetime.
10. Within this debt corpus, he could protect his capital, and also save taxes annually, by utilizing Savings accounts and FDs, say, as follows:-
a) Maintain 1 lakh annually in 3% Savings accounts - 3000 annual interest earned,
b) Avail Sec 80C tax benefits up to 1.5 lakh annually, by laddering 6% Tax-saver FDs of 5-10 years duration - 9000 annual interest earned (whose taxation can be deferred to maturity year too), and
c) Ladder up to 6 lakh in 6% normal FDs of 1-4 years duration - 38000 annual interest earned.
d) In this way, 7.5 lakhs (excluding 1 lakh maintained in savings accounts) can be laddered annually without paying any tax, as the annual interest of 50,000 earned by the senior citizen is tax-exempt u/s 80TTB.
e) Further laddering can be done if the senior citizen's total annual income remains non-taxable.
11. Continuous laddering, as per suitability of future withdrawal needs, helps optimal tax-planning and capital protection of a senior citizen.
12. For the remaining debt corpus of the senior citizen, similar laddering of higher interest debt funds would also be tax-efficient, as there would be no accumulated interest involved too.
13. Upon systematic withdrawal, as per 3-yr+ needs, LTCG would also qualify for tax benefits under indexation rules.
14. Interest rates keep changing due to inflation, domestic growth, money supply or global economy.
15. Laddering is a fixed income strategy where a ladder is made by spreading corpus evenly among various debt products that mature at regular time intervals.
16. These intervals could be as short as 1 month and as long as 10 years, as per risk appetite and goals.
17. This strategy offers cash flows as per goals, by maturity of products at regular intervals.
18. Getting stuck with interest rates is also avoided, as instruments that offer better interest can be chosen as soon as the old instruments mature.
19. Market volatility is also managed, as getting locked into a product for an extended period gets avoided.
20. Laddering helps in diversifying investments and reducing risks.
21. It is best to start with shorter duration products, then expanding the ladder gradually as needed.
22. A ladder of debt products can be compared to an actual ladder for better understanding, which would, thus, have steps/rungs, a height and instruments that make it.
23. These can be any fixed income investments, such as bank FDs, Post Office products, bonds, government securities, debentures and debt funds of different maturity.